Avoiding Tort Claims for Defective Hardware & Software

Strategies for Dealing With Potential Liability Woes

There have been many well-publicized incidents in which defective computer hardware and/or software has caused bodily injury and property damage. However, the bulk of existing computer cases seeking and/or awarding compensation for defective hardware and software products have been based on contract claims, primarily dealing with rejection, revocation, and breach of express or implied warranties.

There have already been incidents in which malfunctioning computer systems have caused:

• Chemical leaks or explosions at chemical or nuclear plants;
• Truck, train or plan collisions;
• Physical injury or death where the systems have involved medical applications; and
• Improper architectural/stress analysis.

To date, however, these incidents have resulted in only a few reported judicial decisions involving tort liability of the providers of these systems.

A strong majority of courts have taken the position that the key to whether a plaintiff can recover based on tort, or is limited to contract claims, depends on the nature of the loss incurred. If the plaintiff's loss results from the malfunctioning or destruction of a defective product, it is deemed to be an economic loss that is within the purview of the Uniform Commercial Code (Restatement of the Law Third Torts: Product Liability, Reporter's Notes to §21.) On the other hand, a tort action may be brought for harm to persons or property, including economic loss, which is caused by harm to (a) the plaintiff's person, (b) the person of another when harm to the other interferes with a legally protected interest of the plaintiff, or (c) the plaintiff's property other than the defective product itself (Restatement Products Liability §21).

There are several computer cases in which the courts have analyzed this threshold issue of whether the loss was "economic," thus limiting the plaintiff to its contractual remedies. There have also been several insurance cases in which coverage depended on whether the damage was to tangible property and therefore within policy limits or uncovered "economic loss." Decisions in these insurance cases have been split.

The remainder of this article sets forth traditional tort law theories, discusses the handful of computer cases which have been reported to date, and concludes with tips for attorneys representing computer vendors, to minimize exposure for tort claims for defective computer hardware or software.

LIABILITY FOR NEGLIGENCE

Providers of computer hardware or software may be liable for negligence if the plaintiff can prove:

• The existence of a duty on the part of the defendant to conform to a specific standard of care,
• Breach of that duty,
• The breach was the actual and proximate cause of the alleged injury, and
• Provable damage (i.e., damage to person or property).

There have been several computer cases in which a court has found negligence.

LIABILITY FOR MALPRACTICE

A malpractice action is a negligence action in which the standard of care imposed on the defendant is that of a professional person who renders advice or performs services.

Although early cases found no such professional duty of care for software providers, Diversified Graphics v. Grooves, 868 F.2d 293 (8th Cir. 1989). Found that the issue of whether a provider of data failed to meet the degree of skill and care required was a question for the jury to decide.

STRICT LIABILITY

Strict liability permits recovery without proof of negligence if certain other criteria are met. The rationale for imposing strict liability is based on the fact that the supplier of a defective or dangerous product is in a better position to reduce potential hazards caused by users of the product, negligence would be difficult to prove, and the supplier is in a better position than the users to ensure against such risks. To establish a case of strict liability, the plaintiff must prove:

• A duty owed by the supplier,
• Breach of the duty,
• Causation, and
• Damages.

There are three types of defects that can give rise to strict product liability: manufacturing defects, design defects and warning defects. (Restatement Products Liability, § 2.)

(The Comments to §1 of the Restatement Products Liability note that "Strict products liability' is a term of art that reflects the judgment that products liability is in a discrete area of law which borrows from both negligence and warranty. It is not fully congruent with classical tort or contract law." As a result, the Restatement does not use the term "strict liability"; however, this article uses the term to refer to this area of product liability because it is still widely used in the reported case law.)

1. Manufacturing Defects
   In a strict liability action based on a manufacturing defect, the plaintiff must prove that the product did not perform in a manner intended by the manufacturer or that it was different from the condition intended by the manufacturer.

   Although several computer cased have included a strict liability based on the existence of a manufacturing defect, the author was unable to find any computer case which found for the plaintiff on that basis. (See Sparacino v. Andover Controls Corporation, 227 Ill.App. 3d 980, 592 N.E.2d 431 (1992); Roberts v. Rick Foods Inc., 654 A.2d 1365 (N.J. 1995)).

2. Design Defects
   A product that has a defective design meets the manufacturer's draft specification, but raises the question whether the specifications themselves created an unreasonable risk. The risk will be deemed to be unreasonable if the presumable risk of harm posed by the design could have been reduced or avoided by the adoption of a reasonable alternative design by the seller or distributor. (Restatement Products Liability, § 2.) (See Roberts, supra, in which the New Jersey Supreme Court held that whether an on-board computer in a tractor trailer was defectively designed was a question of fact for the jury.)
3. Duty to Warn
   Sec. 10 of the Restatement Products Liability provides that a duty to warn may arise either at the time of sale or distribution or, in some circumstances, after the time of sale:
   • One engaged in the business of selling or otherwise distributing products is subject to liability for harm to persons or property caused by the seller's failure to provide a warning after the time of sale or distribution of a product where a reasonable person in the seller's position would provide such a warning.
   • A reasonable person in the seller's position would provide a warning after the time of sale when:

     (1) The seller knows, or reasonably should know, that the product poses a substantial risk of harm to persons or property; and

     (2) Those to whom a warning might be provided can be identified and may reasonably be assumed to be unaware of the risk of harm; and

     (3) A warning can be effectively communicated to, and acted on by, those to whom a warning might be provided; and

     (4) The risk of harm is sufficiently great to justify the burden of providing a warning.

The comments to this section note that judicial recognition of the seller's duty to warn of a product-related risk after the time of sale is relatively new, but there is a growing body of decisional and statutory law imposing this duty. The comments then state, "The legal standard is whether a reasonable person would provide a post-sale warning."

The Reporter's Notes also cite from the Model Products Liability Act, § 104(C)(6), which provides that a claim for product liability may arise: ". . . where a reasonably prudent manufacturer should have learned about a danger connected with a product after it was manufactured. In such a case, the manufacturer is under an obligation to act with regard to the danger as a reasonably prudent manufacturer in the same or similar circumstances. This obligation is satisfied if the manufacturer makes reasonable efforts to inform product users or a person who may be reasonably expected to assure that action is taken to avoid the harm, or that the risk of harm is explained to the actual product user." (See Jones v. Minnesota Mining and Manufacturing Co., 100 N.M. 268, 669 P.2d 744 (N.M. Ct. App.1983) (no duty to warn of dangers actually known to the user of a product but that there was a substantial fact issue as to the user's knowledge of the nature and the extent of the danger of the product which precluded summary judgment); Sparacino v. Andover Controls corp., 227 Ill. Ap. 3d 980, 592 N.E.2d 431 (Ill. Ap. Ct. 1992) (defendant's computerized energy management system was not dangerous as assembled, and trial judge properly granted the manufacturer's summary judgment motion on the strict liability count. However, the manner in which the distributor installed and programmed the system may have created a duty to warn on the part of the distributor). See also Frye v. Medicare-Glaser Corp., 219 Ill. App. 3d 931, 579 N.E.2d 1255 (Ill. App. Ct. 1991), rev'd, 153 Ill. 2d 26, 605 N.E.2d 557 (Ill. 1992), in which the Illinois Supreme Court found that a pharmacy did not breach its duty to warn, when it failed to apply all the warning labels generated by its computer system in connection with a prescription drug, because providing warnings did not obligate the pharmacy to warn of all dangers associated with the use of the prescription drug.)